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Romero v. Allstate Insurance Co.

United States District Court, E.D. Pennsylvania

April 27, 2017

GENE R. ROMERO, et al., Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY, et al, Defendants. Nos. 01-6764 (Romero II), 03-6872 (Romero III), 15-1017 (McLaughlin), 15-1049 (Abell), 15-1190 (Harris), 15-2602 (Tabor), 15-2961 (Siegfried), 15-3047 (Anzivine)

          MEMORANDUM WITH FINDINGS OF FACT AND CONCLUSIONS OF LAW FOLLOWING OUR PHASE I NON-JURY TRIAL ON ERISA'S ANTI-CUTBACK RULES

          KEARNEY, J.

         Employers offering pension benefits may not amend or interpret their pension plan to cutback on accrued benefits without ensuring a plan participant does not lose the accrued benefits. Following our bench trial where we evaluated the credibility of conflicting lay and expert witness testimony, reviewed thousands of pages of exhibits, heard extensive legal argument from experienced counsel and studied proposed post-trial findings of fact, we now enter findings of fact and conclusions of law under Federal Rule of Civil Procedure 52(a)(1) in determining whether Defendants Allstate Insurance Company, The Allstate Corporation, the Allstate Agents Pension Plan, and the Allstate Agents Pension Plan Administrative Committee (collectively “Allstate”) violated the anti-cutback rules of Employee Retirement Income Security Act (“ERISA”)[1] when it amended the Allstate Agents Pension Plan in November 1991 retroactive to January 1989 to eliminate an early retirement subsidy known as the “beef-up” benefit or when it later interpreted the term “retire” in its pension plan.

         We find Allstate's November 1991 amendments eliminating the beef-up subsidy did not violate ERISA's anti-cutback rules because Allstate guaranteed participants in the Plan on December 31, 1988 the greater of two alternatives with a baseline of their beef-up subsidy as of the amendment. The participant could only do better after the amendment. We disagree with the Plaintiff agents' claim the safe harbor failed to protect against a cutback because Allstate locked-in, without “truing up, ” the dollar amount for the beef-up subsidy based on 1988 compensation rather than the final full year of compensation before early retirement. We also find the retroactivity of Allstate's November 1991 amendments to January 1989, given the uniqueness of awaiting Internal Revenue Service guidance after the Tax Reform Act of 1986, does not violate the anti-cutback rules, including for the sound reasons announced by the Court of Appeals for the Eleventh Circuit in reviewing Allstate's November 1991 amendments.[2]

         But after evaluating witness credibility and admitted deposition testimony and exhibits, we find Allstate's interpretation of the term “retire” in its Plan denying beef-up eligibility to agents with the requisite service years at the time they became exclusive agent independent contractors and who later ceased exclusive agent service at the age of at least 55, but less than age 63, is a cutback prohibited by ERISA. Allstate wrongly adds the word “simultaneously” to misinterpret its Plan language defining “retire” so to deprive eligibility for any agent electing to become an independent contractor agent but not immediately terminating his service with Allstate. As a result of this interpretation, agents who became independent contractors after meeting the requirements for the early retirement beef-up subsidy but who did immediately terminate their services for Allstate did not receive the safe harbor protections in Allstate's Plan.

         In the accompanying Order and to remedy this cutback for exclusive agents who may have a loss after being provided with the safe harbor calculations, we require the parties promptly confirm and calculate the safe harbor benefit for exclusive agent Plaintiffs affected by this improper interpretation and promptly report the comparison so we can determine the greater of the two alternatives offered to the exclusive agents under Allstate's safe harbor.

         I. Introduction

         Approximately thirty Allstate insurance agents filed two putative class actions against Allstate in 2001: Romero, v. Allstate Ins. Co., , No. 01-3894 (“Romero I”) and Romero, v. Allstate Ins. Co., , No. 01-6764 (“Romero II”). In 2015, after years of litigation including two appeals, over 400 additional agents intervened or became named plaintiffs in Romero I. Upon reassignment to us in 2016, we consolidated[3] all actions to resolve common issues under ERISA and the Age Discrimination in Employment Act (ADEA).[4] We ordered Plaintiffs to file a consolidated amended complaint (“Complaint”), setting a case management and discovery schedule, and dividing the common federal question issues into two trial phases: “Phase I” to address cutback claims under ERISA section 204(g)[5] and “Phase II” to address remaining federal common federal questions under ERISA § 510[6] and ADEA disparate impact claims.[7]

         Plaintiffs in Phase I are all former Allstate employee insurance agents who became participants in Allstate's Agents Pension Plan (the “Plan”), and claim Allstate violated ERISA's anti-cutback provision by amending its Plan to eliminate the beef-up subsidy, an accrued benefit. Plaintiffs identify a total of 118 individuals who have, or may have, a cutback claim.[8] At trial, the parties disputed which of these 118 Plaintiffs have standing to assert a cutback claim.

         We analyze whether Allstate improperly cut back accrued benefits by (1) plan amendments to the early retirement subsidy; and (2) interpreting employee agents who converted to “Exclusive Agents” as ineligible for the early retirement subsidy.

         II. Findings of Fact

         1. Plaintiffs are all former employee agents of Allstate and participants in the Allstate Agents Pension Plan (the “Plan”), a defined benefit plan.[9]

         2. Before 1990, Allstate sold its insurance products through its employee agents employed under employment contracts.[10]

         3. All employee agents between the ages of 21 and 63 automatically became participants in the Plan on January 1 of the first year in which he or she completed one year of “Credited Service” and remained “in the employ of an Employer as an Agent.”[11]

         4. Membership in the Plan “is mandatory and automatic” for all eligible “Agents” and “[e]very Agent who becomes a member in the Plan shall continue to be a member as long as he continues as an Agent.”[12]

         5. The Plan year runs from January 1 through December 31.[13]

         6. An administrative committee consisting of a chairman and at least two other members appointed by the pension committee of Allstate's board of directors administers the Plan.[14]

         7. Allstate's Administrative Committee is the “named fiduciary” under ERISA with the “exclusive right to interpret the terms and provisions of the Plan and to determine any and all questions arising” under the Plan.[15]

         A. Allstate's early retirement beef-up subsidy in its 1989 Plan.

         8. Allstate's Agents Pension Plan, as amended effective January 1, 1989, (“1989 Plan”) provided for retirement benefits upon “normal retirement, ” “later retirement, ” “early retirement, ” and “termination before normal retirement.”[16]

         9. Section 2.1 of the 1989 Plan provided retirement benefits for “normal retirement” at age 63 and included a formula for calculating “Retirement Pay.”[17] A normal retirement benefit is computed by taking 2.5% of the Agent's “Annual Compensation, ” as defined by Plan, less a Social Security offset.

         10. Section 2.3(A) provided an early retirement subsidy for eligible agents known as the “beef-up.”[18] Allstate calculates this early retirement benefit by first determining the normal retirement benefit under Section 2.1 and adding up to eight years of “beef-up” for the years between the participant's early retirement and age 63, the normal retirement date, reduced for each year the participant retired early:

If an Agent shall retire prior to his Normal Retirement Date after having attained age 55 and, at his actual retirement date, having completed 20 years of continuous service with the Employers and controlled group members, and in accordance with the Company's voluntary early retirement policy, he shall become entitled to receive Retirement Pay commencing on the first day of the month next following his actual retirement date. The amount of such Retirement Pay, subject to the limitations hereafter stated in the Plan, shall be (i) the amount of Retirement Pay which he would receive if he continued in employment to Normal Retirement Date at his same level of Annual Compensation as in the most recent full calendar year, (ii) reduced by 0.4% for each full month by which the commencement of his Retirement Pay shall precede his Normal Retirement Date.[19]

         11. Allstate provided the beef-up to encourage early retirement by increasing a participant's benefit to the level it would have been if the participant continued to work until his Normal Retirement Date at age 63, subject to reduction for each year the participant retires early.[20]

         12. An Agent became eligible to receive the beef-up subsidy upon satisfying certain eligibility requirements; an “Agent” must retire prior to the Normal Retirement Date of age 63; attain the age 55; complete 20 years of continuous service with the “Employers and controlled group members, ” as defined by the Plan, and retire in accordance with the Allstate's “voluntary early retirement policy.” 13. Assuming an Agent elects early retirement upon meeting eligibility conditions, his “Retirement Pay” is “beefed-up” to include years of pay (based on his last year of pay) he would have received had he worked to Normal Retirement Age, age 63 under the 1989 Plan. An Agent who retired at age 55 with 20 years of continuous service would receive a maximum eight years of “beef-up” added into the calculation of his “Retirement Pay” reduced by 4.8% per year for each year the participant retires before age 63. An Agent who retired at age 56 with 20 years of continuous service would receive seven years of “beef-up;” an Agent who retired at age 57 with 20 years of continuous service would receive six years of “beef-up” and so forth until reaching age 63.

         B. Allstate introduces its “Exclusive Agent independent contractor” program.

         14. In 1990, Allstate introduced its Exclusive Agent (“EA”) program. Employee agents who converted to EA entered into Exclusive Agent Agreements, and Allstate hired all agents into the EA program under such Exclusive Agent Agreements.[21]

         15. Under the EA program, an Agent either operated under (a) an eighteen-month provisional R3000 employee contract before entering into an R3001 EA agreement or (b) under an R3001 EA agreement designating him as an independent contractor.[22]

         C. Allstate freezes the Plan in response to the Tax Reform Act of 1986.

         16. In 1986, Congress passed the Tax Reform Act of 1986 (“TRA ‘86” or the “Act”), Publ. L. 99-514, 100 Stat. 2085.

         17. Among other changes to the tax code, TRA '86 changed the treatment of employer sponsored retirement plans such as qualified pension plans. "One of the principal purposes of the Act, with respect to pension plans, was to eliminate perceived discrimination in favor of highly compensated employees. One of the most common instances of the discrimination Congress wanted to eliminate was the Social Security offset."[23] To retain the tax advantages of a qualified pension plan, the Act required employers to adopt non-discriminatory benefit formulas by January 1, 1989.

         18. To prepare for the changes required by TRA '86, Allstate engaged the consulting firm Mercer Meidinger Hansen ("Mercer") to recommend plan amendments to bring the Plan into compliance with the new law as well as to meet Allstate's business objectives.[24]

         19. Mercer told Allstate TRA '86 precluded the use of a Social Security offset in the Plan's benefit formula because it may discriminate in favor of highly compensated employees.[25]

         20. Allstate's Pension Committee concluded it was both necessary and sensible to amend the Allstate Agents Pension Plan to eliminate the Social Security offset from the Plan benefit formula.[26]

         21. The Act required the Secretary of the Treasury to issue regulations providing guidance to plan sponsors. By late 1988, the Internal Revenue Service ("IRS") failed to issue such regulatory guidance.

         22. On December 27, 1988, the IRS issued Notice 88-131.[27] The stated purpose of Notice 88-131 “is to provide relief to sponsors of qualified pension . . . plans . . . in order to provide time to review regulations and make decisions about benefit program redesign without incurring impractical costs in order to comply with [TRA '86].”[28]

         23. Notice 88-131's Purpose and Background section provided: “Regulations issued pursuant to section 401(b) of the Code have been amended to include provisions of TRA '86 within the definition of disqualifying provisions, thus permitting plan sponsors an extended remedial amendment period in which to amend their plans to comply retroactively with TRA '86.”[29] Section 401 of the tax code, 26 U.S.C. § 401, pertains to qualified pension plans.

         24. The extended remedial amendment period notwithstanding, Notice 88-181warned Code section 401(b) “does not permit plan sponsors to retroactively reduce or eliminate benefits protected by section 411(d)(6).”[30]

         25. Section 411(d)(6), 26 U.S.C. § 411(d)(6), is the Internal Revenue Code's counterpart to ERISA's section 204(g) anti-cutback provision and, like section 204(g), prohibits the decrease of an accrued benefit by plan amendment.

         26. Notice 88-131 states section 411(d)(6) of the Code provides, in general, “a plan amendment . . . may not decrease a participant's accrued benefit determined as of the later of the date of adoption or the effective date of the amendment” and because neither TRA ‘ 86 nor section 401(b) of the Code provide an exception to the anti-cutback provision in section 411(d)(6), “the prohibition applies with respect to plan amendments made to comply with TRA '86 after the first accruals of the 1989 plan year.”[31] Compliance with section 411(d)(6) requires a participant's accrued benefit “immediately after the later of the adoption or effective date of an amendment not be less than the greater of (1) the participant's accrued benefit calculated without regard to the amendment or (2) the participant's accrued benefit calculated in accordance with the amendment.”[32]

         27. Notice 88-131 offered relief to employers in the form of “Model Amendments” allowing time to “study new regulations and other interpretive guidance requisite to their decisions with respect to plan design and benefit structure, and in view of the requirements of section 411(d)(6) of the Code and the nondiscrimination requirements of TRA '86.”[33]

         28. Model Amendment 3 was “designed for plan sponsors that anticipate substantially revising the plan's provisions, limits additional benefit accruals of all plan participants from the effective date of the amendment until the end of the 1989 plan year.”[34]

         29. Model Amendment 3 allowed “a plan, subject to certain time limitations, [to] suspend post-1988 benefit accruals for plan participants until after the adoption of a benefit formula in compliance with TRA '86. Under Model Amendment 3, plan participants' benefits during the period of suspension would be determined at a later date using the benefit formula adopted by their plan sponsor to comply with TRA '86.”[35]

         30. Model Amendment 3 provided in part:

Notwithstanding any other contrary provision of the plan, in calculating the accrued benefit . . . of any participant, such participant shall accrue no additional benefit under the plan on or after [insert the effective date of this model amendment, which shall be no earlier than the date this amendment is adopted] to the extent that such additional benefit accrual exceeds the benefit which would otherwise accrue in accordance with the terms of the plan as subsequently amended to comply with those qualification requirements described in [TRA ‘86].”[36]

         31. Notice 88-131 required plan sponsors adopting Model Amendment 3 to do so by March 31, 1989.[37]

         32. On March 13, 1989, Allstate adopted Model Amendment 3 and amended the Plan to add a new Section 3.9 entitled “Temporary Limitation on Benefit Accrual.” Section 3.9 recites the language of Model Amendment 3.[38]

         33. Section 3.9 “froze” Plan participants' benefits after 1988 and, in accordance with Model Amendment 3, provided a participant's accrued benefit “shall not be less than what the participant had accrued as of the last day of the last plan year beginning before January 1, 1989, ” that is, as of December 31, 1988.

         34. By its terms, Model Amendment 3, “shall be effective until the last day of the first plan year commencing in 1989 and shall be effective for such period if any only if the subsequent TRA '86 amendment is made on or before the last day of the first plan year commencing in 1989, ” that is, until December 31, 1989.[39]

         35. Model Amendment 3 was not subject to notice requirements of ERISA section 204(h), 29 U.S.C. § 1054(h).[40]

         36. ERISA Section 204(h), 29 U.S.C. §1054(h), prohibits amendment of a pension plan “significant[ly] reduc[ing] . . . the rate of future benefit accrual” unless the plan administrator provides notice to plan participants written in a manner “calculated to be understood by the average plan participant” and providing sufficient information to allow participants to understand the effect of the plan amendment.

         37. In February 1989, before adopting Model Amendment 3, Allstate advised its employees of changes to the Plan as a result of TRA '86:

a. Plan change effective January 1, 1988 regarding the accrual of benefits for employees who work past age 65;
b. Plan changes effective January 1, 1989 regarding vesting; the payout of pension benefits for participants who reach age 70 ½; and compensation used in the calculation of pension benefits is limited to $200, 000;
c. TRA '86 requires modification of the way benefits are earned in plans with a social security offset, and while the IRS had not yet published guidelines on how benefits should be calculated, Allstate “would like to share some important facts” highlighted in bullet points: benefits earned in the Plan through December 31, 1989 will not be affected; there will be no gap in Plan participation and pension benefits will continue to earn credit in 1989; Plan participants retiring or terminating in 1989 and eligible for payment at that time will be paid benefits earned through December 31, 1988 and credits earned between January 1, 1989 and the date of termination will be paid out later in the year when the new benefit calculations are known; Allstate will be unable to provide benefit estimates for retirements after January 1, 1989; and Annual Statement of Benefits due for distribution in April 1989 will provide benefits earned through December 31, 1988, but projected benefits will not be shown.
d. Once the IRS provides specific guidelines, Allstate “will communicate to all employees complete information on Pension Plan changes.”[41]

         38. Continued delay in the issuance of IRS regulations resulted in IRS Revenue Procedure 89-65 published in November 1989.[42]

         39. Revenue Procedure 89-65 extended the application of Model Amendment 3 under Notice 88-131 to “allow plan sponsors to continue the suspension of benefit accrual beyond the end of the 1989 plan year.”[43] Under Revenue Procedure 89-65, plan sponsors such as Allstate could continue the suspension of benefit accruals under Model Amendment 3 until (a) December 31, 1990 or (b) December 31, 1991 as long as the plan sponsor provided the notice described in ERISA section 204(h).[44]

         40. On December 29, 1989, Allstate amended Section 3.9 of the Plan changing the effective date of the provision from “the last day of the first plan year commencing in 1989” to “the last day of the first plan year commencing in 1990” and provided it “shall be effective for such period if any only if the subsequent TRA '86 amendment is made on or before the last day of the first plan year commencing in 1990.”[45]

         41. In December 1989, Allstate sent a letter to “Allstate Associate[s].” The December 1989 letter referred to the February 1989 letter, advised Allstate still awaited IRS guidance and it “has been developing a new pension plan design in anticipation of the final regulations.” Recognizing the “plan design” will not be completed for several months, the December 1989 letter advised pension benefits earned through December 31, 1988 will not be affected; current “methods” of receiving pension benefits will continue to be available; there is no gap in plan participation and participants will continue to earn credit toward pension benefits in 1989 and beyond; and the Social Security offset will be eliminated.[46]

         42. In April 1990, Allstate sent another letter to “Allstate Associates.” The April 1990 letter “reemphasize[d]” the points in the December 1989 letter; repeated the same bulleted points as the December 1989 letter; and additionally advised employees to “review all your benefits information.”[47]

         43. In September 1990, Allstate sent out a fourth letter to “Allstate Associates.” The letter advised of the release of regulations implementing TRA '86, and, as a result, Allstate made Plan changes and meetings with all associates will be held to review changes to the Plan.[48]

         44. In November 1990, the IRS issued Notice 90-73, again extending the period for compliance with TRA '86 and the freezing of benefits through the end of 1992.[49] The IRS extended the remedial amendment period again in Notice 92-36 to the end of 1994.[50]

         D. Allstate's October 1990 Pension Committee Resolution.

         45. As of September 1990, Allstate sent out four letters to employees; February 1989, December 1989, April 1990, and September 1990 regarding changes to the Plan but had not yet amended the Plan to comply with TRA ‘86.

         46. On October 26, 1990, Allstate's Pension Committee adopted a resolution to amend the Plan:

BE IT RESOLVED, That the officers of Allstate Insurance Company (the “Company"'), acting on behalf of this Committee, be and they are hereby authorized and directed to amend the Agents Pension Plan (the "Plan"), and the trust agreement forming a part of the Plan (the "Trust"), to provide full vesting after five years of service; to modify the benefit formula for service after 1988 to 2% times eligible annual compensation for each year of credited service; to raise the normal retirement age to 65, to comply with the applicable requirements of the Tax Reform Act of 1986 and Internal Revenue Service rulings and regulations, and to effect such additional changes in the Plan and Trust as they deem necessary or desirable as a result of the provisions of said Act, rulings and regulations; provided that the annual cost to the Company for the Plan and Trust, as so amended, is substantially similar to the level outlined and described to this Committee by the officers.[51]

         47. Allstate did not address the beef-up in the October 1990 Resolution.

         48. In the Scott litigation, the Court of Appeals held the October 1990 Resolution did not constitute a plan amendment.[52]

         49. Although Allstate did not amend the Plan by the October 1990 Resolution, Allstate distributed a booklet around the time of the October 1990 resolution addressed to Allstate Agents entitled “Shaping Your Future Financial Security . . . Today” (the “Booklet”).[53]

         50. In the Booklet section entitled “What's New?” Allstate highlighted some changes to the Plan, but did not mention eliminating the beef-up. In the “How the Plan Works Now” section for “Service Before January 1, 1989, ” Allstate stated “the current ‘beef-up' feature in the Pension Plan will continue until 1999. Prior eligible compensation and service beef-up provisions will continue until 1) you turn age 63, or 2) December 31, 1999, whichever occurs first.”[54]

         E. Allstate's November 1991 Plan Amendment eliminating the beef-up benefit and providing a “safe harbor.”

         51. On November 15, 1991, Allstate's Pension Committee amended several sections of the Plan, including a new post-1988 benefit formula eliminating the Social Security offset and amending Section 2.3(A) beef-up subsidy (“November 1991 Amendments”).[55] Allstate made amendments to Sections 2.1, 2.2, 2.3, and 2.4 retroactively effective as of January 1, 1989.

         52. Section 2.3(A) of the amended Plan eliminated, as of December 31, 1999, the beef-up subsidy. The new Section 2.3(A) had the same eligibility requirements; an Agent must retire prior to his Normal Retirement Date; attain the age of 55; complete 20 years of continuous service; and retire in accordance with Allstate's voluntary early retirement policy. However, under the newly amended Plan, Agents meeting the eligibility requirements received a beef-up subsidy “until the earlier of (a) the last day of the month in which his 63rd birthday occurs, or (b) December 31, 1999; (ii) reduced as provided in Section 2.3(B) . . ..”[56]

         53. The 1991 Amendments also included a Special Minimum Benefit Provision, also referred to as a “safe harbor, ” in Section 2.3(C) which Allstate claims protects participants' beef-up subsidy accrued before the effective date of January 1, 1989. The safe harbor provided:

In no event shall the amount of such Retirement Allowance be less than the Agent's Early Retirement Benefit, computed under the terms of the Plan as in effect on December 31, 1988 as though the Agent had retired on that date, but commencing at his Early Retirement Date.[57]

         54. The safe harbor guaranteed an individual who was a participant on December 31, 1988 and who became eligible for the beef-up either before or after the November 1991 Amendments, would receive the greater of two alternatives: (i) the early retirement benefit calculated as though the participant had retired on December 31, 1988 under the terms of the pre-amendment Plan (“Alternative #1”); or (ii) the early retirement benefit calculated on the participant's actual date of retirement under the terms of the post-amendment Plan (“Alternative #2”).[58]

         55. Alternative #1 is calculated as follows: Step 1: First determine the normal retirement benefit a participant would receive if he or she retired under Section 2.1 on December 31, 1988 (i.e., the normal retirement benefit based on Annual Compensation for each year of Credited Service from date of hire through 1988). Step 2: Add the normal retirement benefit plus up to eight years of beef up based on the last full year of Annual Compensation (i.e., 1988 compensation) for the period between the participant's age on December 31, 1988 and his or her 63rd birthdate. Step 3: Reduce the sum from Step 2 (i.e., the normal retirement benefit plus the beef up) by 4.8% a year for each year the participant retires before the Normal Retirement Date. The result is the annual amount of the early retirement benefit under Alternative #1.[59]

         56. Alternative #2 is calculated as follows: Step 1: First determine the normal retirement benefit a participant would receive if he or she retired under Section 2.1 on his or her actual date of retirement (i.e., the normal retirement benefit based on Annual Compensation for each year of Credited Service from date of hire through the participant's last year of Credited Service). Step 2: Add the normal retirement benefit to any beef up based on the last full year of Annual Compensation for the period between the participant's actual date of retirement and the earlier of (i) his or her 63rd birthdate and (ii) December 31, 1999. Step 3: Reduce the sum from Step 2 (i.e., the normal retirement benefit plus any beef up) by 4.8% a year for each year the participant retires before the Normal Retirement Date. Because the normal retirement age increased from 63 to 65 in 1989, the Pre-1988 Benefit and the Post-1988 Benefit are reduced separately. The Pre-1988 Benefit is reduced by 4.8% a year for each year the participant retires before age 63, and the Post-1988 Benefit is reduced by 4.8% a year for each year the participant retires before age 65. The result is the annual amount of the early retirement benefit under Alternative #2.[60]

         57. Alternative #1 is calculated based on a participant's accrued normal retirement benefit as of December 31, 1988 and credited the participant with the maximum eight years of beef-up subsidy regardless of when the participant retired.

         58. Alternative #2 is calculated based on the Plan as amended in November 1991.

         59. After the November 1991 Amendment, Participants younger than 55-years old by December 31, 1991 would not receive the eight years of beef-up provided in the pre-amended Plan. For example, a participant who turned 55 in 1995 with the requisite years of continuous service would receive only 4 years of beef-up rather than the eight years of beef-up because the amended Plan eliminated the beef-up as of December 31, 1999. Participants who turned 55-years old after December 31, 1999 received no beef-up under the amended Plan.

         F. Allstate's “Preparing for the Future” Program.

         60. On November 10, 1999, Allstate announced its “Preparing for the Future” Program (the “Program”). Under the Program, Allstate planned to terminate all agent employees by no later than June 2000.[61]

         61. Through the Program, employee agents could either convert to EA status or leave Allstate either by selling their book of business to Allstate (“sale option”) or taking severance (“severance option”).[62]

         G. Identification of Plaintiffs

         62. Allstate employed Plaintiffs as employee agents who, at the time of the Program, could either convert to EA or leave the company.

         63. There is a total of 118 Plaintiffs in this Phase I trial who allege a violation of ERISA's anti-cutback provision:

(a) 75 Plaintiffs, broken into Groups One through Four, have a cutback claim regardless of whether Allstate properly classified them as employees or independent contractors;
(b) 43 Plaintiffs may have a cutback claim if they show, in later, individual proceedings, Allstate improperly classified agents under the R3001 Agreement as independent contractors.[63]

         64. All 118 Plaintiffs were Plan participants by December 31, 1988, except Brenda Hammond, who became a participant on January 1, 1989. Plaintiffs' employment contracts terminated either on December 31, 1999 or between January 1 and June 30, 2000.[64]

         65. At trial, Plaintiffs' counsel categorized 75 of the 118 Plaintiffs into four groups.

         Group One and Group Two Plaintiffs

         66. Group One consists of eight (8) individuals who met the age and service criteria for early retirement and “retired” from Allstate because they neither converted to EA nor elected the sale option, thereby satisfying the requirements of the pre-amended Section 2.3(A) beef-up provision.[65]

         67. Trial exhibits calculated the safe harbor for each of the eight Group One Plaintiffs. As confirmed by Plaintiffs' exemplar summary chart relating to Group One Plaintiff O'Connor, there is no evidence any Group One Plaintiff lost any early retirement subsidy by comparing the Alternatives #1 and #2 assuming we compared, under today's Findings, the 1988 compensation and compensation in the last year of service.[66]

         68. Group Two consists of 31 individuals who in 2000 elected the sale option, selling their book of business to Allstate having met the age and years of continuous service eligibility criteria for the beef-up.[67]

         69. Upon electing the sale option, Allstate required Group Two Plaintiffs to execute an EA contract and wait one month before Allstate processed the sale. Plaintiffs contend the only relevant difference between Group One and Group Two is Allstate's requirement those in Group Two sign an EA contract for one month for “purely administrative reasons” and then used the signing of the EA contract to deprive them of beef-up eligibility.

         70. Allstate contends Group Two Plaintiffs converted to EA and did not “retire” from Allstate. Allstate's Administrative Committee interpreted the term “retire” for purposes of the early retirement beef-up eligibility as requiring an Agent to have incurred both a termination of employment and a separation from service and an Agent converting to EA as having incurred a termination of employment but not a separation of service.[68]

         71. Plaintiffs assert Group Two Plaintiffs met the age and service criteria for beef-up eligibility and “retired” from Allstate, thereby satisfying all the pre-amendment conditions for the beef-up. Plaintiffs assert those in Group Two are eligible for the early retirement beef-up benefit regardless of whether they are properly classified as independent contractors under the EA contract.

         72. Plaintiffs contend those in Group One and Group Two (a total of 39 Plaintiffs) retired from Allstate at the time of the Program at the age of at least 55, but less than age 63, with at least 20 years of continuous service and were denied any beef-up subsidy because it had been eliminated as of December 31, 1999.

         Group Three and Group Four Plaintiffs

         73. Group Three consists of 33 Plaintiffs who converted to EA under the Program with at least 20 years of continuous service and were between the ages of 55 and 63 after 2000.

         74. Group Four consists of three (3) Plaintiffs who converted to EA and are currently active EAs with the requisite 20 years of continuous service when they converted to EA and are now at least 55 years old but not yet 63 years old.

         75. Plaintiffs assert Group Three and Four Plaintiffs have met, or could still meet, all pre-amendment conditions for the beef-up even assuming they are properly classified as independent contractors under the EA contract.

         76. There are 75 Plaintiffs in Groups One, Two, Three, and Four. The remaining 43 of the 118 total Plaintiffs are those who converted to EA and, under our summary judgment opinion, will need to show in a later proceeding their service as an EA meets the definition of a common law employee not an independent contractor so as to have their service as an EA count towards the 20 years of continuous service for early retirement beef-up eligibility.

         77. Allstate does not dispute the eight Plaintiffs in Group One have standing, but argues none of the eight suffered damage.

         78. Allstate argues Plaintiffs in Groups Two, Three, and Four all converted to EA, and EAs are, and always have been, ineligible for the beef-up subsidy in Section 2.3.

         79. Plaintiffs seek the following remedies:

a. The Court determine and adjudge Allstate and the violated the Plaintiffs' anti-kickback rights under 29 U.S.C. § 1132(a)(3);
b. The Court issue a permanent injunction under 29 U.S.C. § 1132(a)(3) and the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202, compelling Allstate and the Administrator to repeal or set aside the November 1991 and December 1994 plan amendments relating to early retirement and the “beef-up” retroactively to the dates those amendments were adopted;
c. The Court enter judgment in favor of Plaintiffs against the Pension Plan and the Administrator under 29 U.S.C. § 1132(a)(3) for “make whole” or other appropriate equitable relief;
d. The Court enter judgment in favor of Plaintiffs against the Pension Plan under 29 U.S.C. § 1132(a)(1)(B) after the Court has provided the relief set forth above;
e. The Court award such other and further relief as may be found just and appropriate;
f. The Court award Plaintiffs attorneys' fees, experts' fees and the costs and expenses of this litigation; and
g. The Court retain jurisdiction over Allstate, the Pension Plan and the Administrator until such time as it is satisfied the practices complained of are remedied and in full compliance with the law.

         III. Conclusions of Law

         80. We have jurisdiction under Section 502(e)(1), (f) of ERISA, 29 U.S.C. § 1132(e)(1), (f).

         A. ERISA's anti-cutback provision.

         81. ERISA is a remedial statute and “should be liberally construed in favor of protecting the participants in employee benefit plans.”[69]

         82. Our Court of Appeals consistently recognizes protection of retirement benefits “reflects the underlying policy goals of ERISA, ” and “Congress's chief purpose in enacting the statute was to ensure that workers receive promised pension benefits on retirement.”[70]

         83. In 1984, Congress amended ERISA by adding section 204(g)(2) to protect early retirement benefits and retirement-type subsidies from reduction or elimination by plan amendment.

         84. Section 204(g), known as the anti-cutback rule, provides in relevant part:

(1) The accrued benefit of a participant under a plan may not be decreased by an amendment of the plan . . .
(2) For purposes of paragraph (1), a plan amendment which has the effect of - (A) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in regulations), or (B) eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits. In the case of a retirement-type subsidy, the preceding sentence shall apply only with respect to a participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy . . . .[71]

         85. To state a claim for a violation of the anti-cutback rule, Plaintiffs must show (1) a plan amendment and (2) the amendment decreased an accrued benefit.[72]

         86. There is no dispute the beef-up subsidy is an accrued benefit. In this Circuit, “[t]here is no question but that a standard early retirement benefit, provided exclusively upon the satisfaction of certain age and/or service requirements, is an accrued benefit” protected by section 204(g).[73]

         87. A plan sponsor may eliminate prospectively an early retirement benefit by amendment, but the amendment cannot “adversely affect that portion of an early retirement benefit already had accrued to a plan participant who satisfie[s] the pre-amendment conditions for the benefit either before or after the amendment.”[74]

         88. If an amendment reduces or eliminates an early retirement benefit or retirement-type subsidy, the amendment must allow participants to “grow into” the benefit.[75]

         B. Comparing the Plan's Section 2.3(A) beef-up subsidy before and ...


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